Scaling up for Asset Managers: How Digitization can support growth and drive down cost/income ratios

We recently completed our 2023 Asset Management Digital Readiness survey, and the topic of scale and growth was high on Asset and Wealth Managers’ agendas. Across the 50 managers we surveyed, representing $34tr in AUM, we saw that firms continued to have ambitious growth targets but needed to increase productivity and client satisfaction, all with constrained budgets.

Asset Management has increasingly become a scale game. The cost of doing business has grown over the years with increased regulation, a wider suite of investment offerings and a more diverse and demanding client base.

Being able to spread these costs across a larger pool of clients with a larger AUM is seen as way to compete. This has prompted increased M&A activity across the industry in the last 3-5 years. The alternative strategy has been to be a specialized smaller investment boutique, who is able to command higher fees, but we know that this can be hard to achieve.

So firms look for the nirvana of AUM growing but keeping costs broadly level (or increase at a lower rate than the increase in AUM & revenue). In short, they are doing more with the same level of internal resources and costs.

Many managers start by looking at how they deliver the interactions with clients through their sales and service activity. We know that this can be where a lot of costs and efforts lie, with ~ 30% of a firm’s costs being in this part of the business.

Firms look across the client lifecycle and invest to achieve specific growth, productivity and client satisfaction outcomes. Example of these are shown in the graphic below:

Through our survey we found that while most digital transformation budgets (c. 75%) will either flatline or decrease, we still see firms mobilizing a portfolio of change initiatives to deliver on these scale, growth and cost objectives.

In the visual below, we highlight the areas of investment that firms ranked as most important to achieving their goals. The themes that come from this include:

• A desire for a more global and standardized approach to managing clients and prospects across regions and segments
• Being able to customize and personalize at scale using technology (rather than manual effort) to reflect the needs and wants of various regional and client segments
• Moving to higher levels of digital self-services (e.g. access to client reporting data) to free up resources
• Increased focus on analytics, AI and automation, to redesign and execute processes which have historically been cumbersome and high effort (e.g. transitions and onboarding)

From our experience, there are some key principles for making these initiatives a success. Overall, they focus on driving towards a key set of priority outcomes, delivering initial value quickly and expanding out to increase the impact across the business.

The concept of the MVP (Minimum Viable Product) is key here. These early iterations of changes to the way client interactions are managed can be developed with “just enough” infrastructure around them to prove they are viable. Firms can then scale across various dimensions (e.g. same capability to new clients & regions, or extend the features functionality with the initial test market). Whichever way is chosen, the point is to build out global capabilities as needed, and ensure variations are only implemented for sound commercial reasons.

As with many other industries, higher levels of digitization in how firms interact with clients and in the way they operate can lead to the appealing mix of growth at lower cost. Firms who can effectively harness these digital initiatives for scale and efficiency, will see benefits across their teams, functions and the business overall.

A number of patterns now exist, which managers can follow with more mature technologies and vendors supporting the AM industry to do so. The key is being nimble enough to experiment and expand initiatives out where the experiments are a success.